Tulane economist available to comment on inflation decline
The Consumer Price Index (CPI) announced this week that inflation eased slightly in July, dropping from 9.1 percent in June to 8.5 percent. For the first time in months, there seems to be a sign of relief from an inflation peak not seen in 40 years. Tulane University economist Felix Rioja said this is good news for consumers when it comes to some energy prices but warned that electricity and food costs continue a steady rise. He also points to higher interest rates as a source of the inflation decline. “On the positive news for households, energy prices fell in July, mostly driven by lower gasoline and natural gas prices, though electricity prices increased,” Riojas said. “However, the food CPI has continued to rise in July at similar rates as each of the past few months, so households will not see the relief on that front.“The Federal Reserve and some experts hoped this would have happened sooner since the Federal Reserve started sizable interest rate increases months ago. Higher interest rates may be finally cooling the economy as borrowing and spending slow down, and thus prices stop rising as fast as they were. But the inflation rate is still historically high.”Rioja is available to speak about the decline of inflation and what consumers should expect for the remainder of 2022. “We hope inflation rates will continue to fall, so markets will carefully watch what happens in August and September. We must also keep an eye on the labor market to see what happens to vacancies and the unemployment rate. We have been in a period of extremely tight labor markets and reducing the inflation rate by raising interest rates has typically brought increases in the unemployment rate and a recession. Achieving the proverbial ‘soft-landing’ has been historically elusive when the economy is similar to its current state,” Rioja said.For interviews, please contact Roger Dunaway at roger@tulane.edu or 504-452-2906.
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Tulane expert available to discuss inflation and impact on consumers
America’s overheating economy and unrest overseas have inflation soaring to heights not seen since the early 1980s. While the Federal Reserve is expected to raise interest rates again, Tulane economist Felix Rioja doesn’t see much relief on the horizon for consumers squeezed by the rising cost of food, gasoline and other necessities. “Bringing the inflation rate back to 2% by the end of the year is unlikely given the recent oil price shocks that tend to reinforce inflation,” said Rioja, a professor of economics at Tulane University School of Liberal Arts. “The Fed’s rate hikes will start bringing the inflation rate down through the year, but it won’t be quick, and it likely won’t go back to 2% in the medium term. Once it rises, inflation is typically persistent. It is hard to bring it down quickly.”He expects around a 7 percent increase in the cost of goods in 2022 with increases slowing as supply constraints ease and interest rates rise. Rioja is available to speak about why we’re seeing rising prices, what consumers can expect and what the federal government must do to address the issue. Why is inflation at record highs? It’s a combination of factors that have drastically changed the supply and demand for goods. The pandemic, the government’s response to the pandemic and the current war in Ukraine are all behind the spike.“The onset of the pandemic brought layoffs and voluntary exits from the labor force leading to lower supply of goods and services,” Rioja said. “Then supply chain issues added to the increased costs of production. The government responded quickly to the pandemic with the American Rescue Plan, providing families with stimulus payments, extended unemployment benefits and expanding the child tax credit. The recent increase in world oil prices and uncertainties from the war in Ukraine is likely to put pressure on increasing inflation further.” Rioja said that the monetary policy conducted by the Federal Reserve is the primary tool to try to bring down inflation. Higher interest rates are designed to cool down spending and the economy, thus lowering inflation. However, Rioja said it is possible to avoid a recession, given the current climate. Still, inflationary periods that come with adverse supply changes in the past have brought recessions, and this time may not be an exception. Rioja is available to speak about what it will take for the current inflation rate to slow and what the federal government must do to avoid a major recession. For interviews, contact Roger Dunaway at roger@tulane.edu or 504-452-2906.
Biography
Felix Rioja joined Tulane in 2018 as the Scott and Marjorie Cowen Chair in Latin American Social Sciences and Associate Professor in the Department of Economics. He is also affiliated with the Stone Center of Latin American Studies at Tulane. Professor Rioja specializes in international macroeconomics, economic growth, and financial economics. He has written articles on the effects of public infrastructure and education on economic growth, welfare, and the distribution of wealth and income. He has also written on the effects of the financial system on growth, poverty reduction and inequality. His research has been published in leading journals such as Journal of Development Economics, Journal of Public Economics, and Journal of Economics Dynamics and Control among others. Rioja has also worked as a consultant for the World Bank and on policy advisory projects for Brazil, Jamaica, Paraguay, and Russia. He has been interviewed and quoted by various news media including CNN.
The welfare effects of infrastructure investment in a heterogeneous agents economy
The B.E. Journal of Macroeconomics
John Gibson / Felix Rioja
2019-06-17
Public infrastructure is one of the foundations for the economic growth of a country. While there is a strong consensus regarding infrastructure’s effect on growth, less is known about the effect of infrastructure on welfare and the distribution of wealth. In this paper, we examine the quantitative effect of infrastructure investment on welfare and the degree of inequality present within a developing country. In so doing, we characterize the effects resulting from increased infrastructure investment by tracing out the entire transition path between steady states. Three results standout: (i) both average and individual welfare effects are sizable, regardless of how the additional investment is financed, (ii) when distortionary taxes are adjusted to finance additional investment, poorer agents benefit more when the interest income tax is used, while richer agents benefit more when either the consumption or labor income taxes are used, (iii) inequality, as measured by the wealth Gini, rises in the short-run, but the long-run effect depends on which financing method is chosen.
Public investment, debt, and welfare: A quantitative analysis
Journal of Macroeconomics
Santanu Chatterjee, John Gibson, Felix Rioja
2018-06-01
In this paper, we examine the relationship between infrastructure investment and economic welfare in the context of a heterogeneous agent, incomplete-markets economy. Using a quantitative model to match the key aggregate and distributional features of the U.S. economy over the period 1990–2015, we show that the welfare-maximizing share of public investment in GDP depends critically on whether one internalizes the transition path between stationary equilibria or not. When welfare changes are evaluated by only comparing long-run stationary equilibria, the model implies that the government should increase infrastructure investment above its average share of 4 percent of GDP in the data. However, once the transition path and short-run dynamics are internalized, welfare-maximization generates an intertemporal trade-off in the path of infrastructure spending: a short-run increase significantly above its observed share in the data, but a long-run decline below this share to satisfy the government’s budget constraint.
We examine the role played by government investment in infrastructure in determining the optimal quantity of public debt in a heterogeneous agent economy with incomplete insurance markets. Calibrating our model to the key aggregate and distributional moments of the U.S. economy for the period 1990–2015, we show that (i) the inclusion of infrastructure, and (ii) transitional dynamics between stationary states critically affect the characterization of the optimal level of public debt. Our results indicate that the inclusion of public infrastructure in the model specification implies a lower optimal debt level relative to the specification without infrastructure, both when comparing stationary equilibria and when accounting for transitional dynamics. When welfare comparisons are made by comparing stationary equilibria, we find that it is optimal for the government to accumulate assets (public surplus). However, once transitional dynamics are accounted for, accumulating debt becomes optimal, with the optimal share implied by our model being significantly higher than the average public debt-GDP ratio for the U.S. observed during our sample period.
Productivity during recessions with banking crises: Inter-Industry evidence
Economics Letters
Felix Rioja, Fernando Rios-Avila, Neven Valev
2017-03-01
Using sectoral data from 104 countries over 40 years we show that per-worker productivity declines during recessions. The adverse effect is particularly strong if recessions are accompanied by banking crises and especially in sectors and countries with greater financial frictions.
Fiscal position and the financing of productive government expenditures: an application to Latin America
Journal of Economic Policy Reform
Tamoya A.L. Christie & Felix K. Rioja
2016-01-13
Government spending on public infrastructure, education, and health care can increase economic growth. However, the appropriate financing depends on a country’s fiscal position. We develop a two-sector endogenous growth model to explore how variations in the composition and financing of government expenditures affect economic growth. We find that, when tax rates are moderate, funding public investment by raising taxes may increase long-run growth. If existing tax rates are high, public investment is only growth enhancing if funded by restructuring the composition of overall public spending. Additionally, public investment that is debt financed can have adverse effects on long-run growth due to the resulting increases in interest rates and debt-servicing costs.
